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Kabul Bank, Afghanistan’s largest lender until its collapse two years ago, was a “fraud perpetrated against depositors”, according to a public inquiry that details how vast amounts of money were trafficked out of the country – including through its major airport.

Kabul, Afghanistan

The report, released yesterday by the country’s Independent Joint Anti-Corruption Monitoring and Evaluation Committee and backed by a number of international agencies, details how controlling shareholders, supervisors and managers at the bank engaged in a “sophisticated operation of fraudulent lending and embezzlement” through a loan book scheme that deprived the bank of $935m, mostly from customer deposits.

The collapse of the bank in September 2010 and subsequent bailout cost the war-torn country five to six percent of its gross domestic product, according to the report, making it “one of the largest banking failures in the world”. Shortly before its collapse, Kabul Bank held 34% of the total bank assets of the entire country.

The 87-page document, the Report of the Public Inquiry into the Kabul Bank Crisis, details how over 92% of the Bank’s loan book, approximately $861m, benefited 19 related parties.

Beneficiaries included shareholders, related individuals and companies, and “politically exposed people”. According to the report, “the loan-book scheme provided funds through proxy borrowers without repayment”, in a system backed up by fabricated documents and statements to satisfy regulators.

According to the document, “except for the initial investment of $5 million, all shareholder acquisitions and transfers were ultimately funded by money from Kabul Bank.”

The report reveals how some of the cash was transferred through Kabul Airport using Pamir Airways, a company owned by shareholder related to the bank, whilst electronic transfers abroad were disguised as legitimate transfers to overseas suppliers. A variety of scams were used to funnel cash out of the institution, including the payment of unjustified bonuses, payments to non-existent employees and excessive expenses.

Ten Pamir Airways pilots were paid $320,000 in salaries between March 2008 and November 2010 under the description “Pilots of Cash Delivery”, which the report said was "particularly suspicious" given the money laundering allegations surrounding the airport, while the report also refers to evidence given in 2009 that the airline was moving cash using airline food trays.

The inquiry is critical of the bank’s independent auditors, who it said provided “clean assessments which were difficult to understand” given earlier examinations by the country’s central bank that uncovered breaches of banking law.

The independent auditors included Behl, Lad and Al Sayegh, a Dubai firm initially approved in February 2006 and replaced on December 31 2008 by AF Ferguson, the Pakistani branch of UK firm PricewaterhouseCoopers. The report said that AF Ferguson’s audits were more detailed than those carried out by the Dubai firm, but that the AF Ferguson “did not appear to follow-up on, or pursue additional details related to, several items that were worth reviewing further.”

PwC said it was not able to comment on the report because it had not been asked to contribute to the investigation, and therefore the report "had no basis on which to assess our work," adding that "we do not believe there is any basis for a claim against us."